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Cash Flow Statement

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Title: Slide 1 Author: Master of HPII Last modified by: sony Created Date: 3/1/2005 1:10:28 PM Document presentation format: On-screen Show Company – PowerPoint PPT presentation

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Title: Cash Flow Statement


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Cash Flow Statement
  • explains the reasons for a change in cash.
  • classifies the reasons for the change as an
    operating, investing or financing activity.
  • reconciles net income with cash flow from
    operations.

3
Activities
  • 1. Operations -- cash flows related to selling
    goods and services that is, the principle
    business of the firm.
  • 2. Investing -- cash flows related to the
    acquisition or sale of non-current assets.
  • 3. Financing -- long term and short term cash
    flows related to liabilities and owners equity
    dividends are a financing cash outflow.

4
Classification of Cash in-flows and outflows
5
Format of the Cash Flow Statement
Name of the Company Cash Flow Statement For the
period Cash from operating activities
A Cash from investing activities B Cash from
financing activities C Net Change in
Cash D (ABC) increase or (decrease)
Beginning Cash balance CB, from the beginning
balance sheet Ending Cash balance CB D
should equal to ending cash
balance in
the ending balance sheet Non-cash Investing and
Financing Activities
6
Determination of Cash Flows From Operating
Activities
  • Direct Method
  • Income Statement items are converted to cash
    flows individually
  • Indirect Method
  • Net income or loss is adjusted for accruals such
    as accounts receivable and payable, and for
    non-cash expenses such as depreciation
  • reconciliation of the accrual based and cash
    based accounting
  • Only operating activities section is different
    between the methods, investing and financing
    sections are the same.

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Illustration of the Preparation of the Cash Flow
Statement
EICC A.S Income Statement For the year 2007
8
EICC A.S. Comparative Balance Sheets- In TL
9
Illustration-Cash flow statement-EICC
  • Additional Information
  • Company sold equipment with original cost of TL
    1.500 and book value of TL 1.370 for TL 1.320.
  • Sold trading securities of TL 1.200 with a gain
    of TL 300, and purchased some.
  • Leased equipment in 2007 for TL 1.000 as a
    capital lease.
  • Purchased building and equipment.
  • Declared and paid dividends.
  • Common stock of TL 600 par value was issued for
    TL 700 cash.
  • Accounts payable pertain to merchandise
    suppliers, and accounts receivable to customers.

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Indirect Method- operating activities
Net income noncash expenses depreciation,
amortization, uncollectible account
expense,etc loss on sale of asset increases
in current liabilities decreases in current
assets - gain on sale of asset - decrease in
current liabilities - increase in current assets
11
Non-cash Expenses
  • Non-cash expenses, such as depreciation expense,
    are added back
  • These are not truly sources of cash even though
    they are associated with cash inflows rather,
    this is a reversal of the accrual process that
    required the expenses to be recognized without
    regard for the cash flow

12
Indirect Method
Investigation of Changes in Specific Accounts
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Indirect Method-Operating
Gain on sale of Trading Securities 300
Loss on sale of equipment (50)
Depreciation Expense 380
Amortization Expense 100
14
Cash Flow from Operating Activities Indirect
Method
EICC A.S For the year 2007
15
Cash Flows from Investing Activities
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Cash Flow from Investing Activities
Cash flow from investing activities Purchase of
building TL (300)
Sale of equipment
1.320 Purchase of equipment
(1.520) Sale of trading
securities
1.500 Purchase of trading securities
(300) Net Cash flow from
investing activities TL 700
17
Cash Flow from Financing Activities
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Financing Activities
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EICC A.S,Cash Flow Statement, For the year 2007-
Direct Method
20
External Uses of CFS
  • To assess the ability of a firm to manage cash
    flows
  • To assess the ability of a firm to generate cash
    through its operations
  • To assess the companys ability to meet its
    obligations and its dividend policy
  • To provide information about the effectiveness of
    the firm to convert its revenues to cash
  • To provide information to estimate or anticipate
    the companys need for additional financing

21
Uses of Cash Flow Statement Information
  • pattern of cash flow statements would provide
    valuable information about the growth stage, and
    possible strategies of companies
  • predicting financial distress
  • Operating cash flows
  • Free cash flows

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